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Cincinnati Financial CEO Discusses Q3 2010 Results - Earnings Call Transcript

Cincinnati Financial CEO Discusses Q3 2010 Results - Earnings Call Transcript

Cincinnati Financial Corporation (



Q3 2010 Earnings Call Transcript

October 28, 2010 11:00 am ET


Dennis McDaniel – IR

Ken Stecher – President and CEO

Steve Johnston – SVP, CFO, Secretary and Treasurer

J.F. Scherer – EVP, Sales and Marketing

Marty Mullen – Chief Claims Officer

Marty Hollenbeck – SVP, Assistant Secretary and Assistant Treasurer


Vincent D’Agostino – Stifel Nicolaus

Josh Shanker – Deutsche Bank

Paul Newsome – Sandler O’Neill

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Caroline Steers – Macquarie

Mark Dwelle – RBC Capital Markets

Fred Nelson – Crowell, Weedon & Co.



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Good afternoon. My name is Steve and I will be your conference operator today. At this time, I would like to welcome everyone to the Cincinnati Financial Corporation third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Now, I’ll turn the call over to Dennis McDaniel, Investor Relations Officer. You may begin.

Dennis McDaniel

Hello. This is Dennis McDaniel. Thank you for joining us on our third quarter 2010 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package and we filed our quarterly report on Form 10-Q. If you need copies of any of these documents, please visit our investor website, The shortest route to the information is the far right column via the quarterly results quick link.

On this call, you will hear from Ken Stecher, President and Chief Executive Officer, and Chief Financial Officer, Steve Johnston. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses may be made by others in the room with us including Chairman, Jack Schiff Jr.; Executive Vice President of Sales and Marketing, J.F. Scherer; Principal Accounting Officer, Eric Matthews; Chief Investment Officer, Marty Hollenbeck; and Chief Claims Officer, Marty Mullen.

First, please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not get reconciled to GAAP.

With that, I will turn the call over to Ken.

Ken Stecher

Good morning and thank you for joining us today to hear about our third quarter and nine-month results. Results for the third quarter were mixed. While the property casualty underwriting performance was disappointing, we did see some bright spots. Those included strong profitability in commercial casualty, our largest line of business and the beginnings of payback on our pricing precision efforts.

Growth of our insurance business continued where we have targeted initiatives to achieve growth. Our investment portfolio registered strong gains and book value grew at a good pace.

Investment income also rose for the quarter and nine months although it declined slightly compared with one quarter ago and that reflects the low interest rate environment we are currently facing. Beyond the near-term challenges, our capital and operating cash flow are strong. And we see the prospect of increasing benefits from our profitability and growth initiatives.

These factors facilitated the decision made during the third quarter to increase our regular quarterly cash dividend to shareholders. The dividend paid earlier this month marked the 50th year in a row of annual dividend increases, a record of consistency matched by only 10 other public companies.

Initiatives to improve the profitability of our property casualty operations are in progress. We expect over time to see more benefit to our financial results. Our investments in pricing precision and technology are having a positive impact now on our personal lines segments, helping to produce an improved loss ratio as well as premium growth in that area.

We expect our more recent and future introductions of predictive analytics tools to improve future profitability for our other lines of business. That includes workers' compensation or use of predictive models began in the third quarter last year. Personal auto, where we just began use for rates effective in the fourth quarter and ultimately all of our major commercial lines.

Other initiatives to improve profitability of our commercial lines segment focus on workers' compensation. We are addressing it from many sides including expanded loss control services and a more rapid claim reporting and management process.

At the same time, we see our new policy administration systems letting us streamline processes and improve workflows, helping with expense management. The new commercial lines system now is available in 25 states and will go to five more states this quarter.

Steve will review the expense ratio trends shortly. Our new policy administration systems also give our agency some efficiencies and cost savings that encourage them to place and keep their business with Cincinnati.

Growth in commercial lines remains a challenge with pricing declines in the low single digits and reduced insured exposure levels that include negative effects on audit premiums. Our property casualty written premiums increased for the quarter and held steady for the nine-month period.

We are working to win our agents best new and renewal accounts by increasing the value we give them in terms of service, up-to-date technology and broad coverages. Diversification beyond our largest segment, commercial lines, is helping us maintain and increase premiums.

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